Unilever Earnings: Growth in a Challenging Market

Unilever’s (ULVR) first-half results showed underlying sales growth of 4.1%, ahead of company-compiled consensus of 4.4%. Growth was driven by volumes, which were up 2.6%, driven in turn by beauty’s strong outperformance, up 5.4%.

More importantly, margins improved substantially in the first half, with underlying operating margin up by 250 basis points to 19.6%, similar to peak levels seen back in 2020. This impressive bottom-line performance was driven by gross margin expansion of 420 basis points partly offset by stepped-up marketing investments (up 180 basis points). From a volume perspective, volume growth accelerated for a third consecutive quarter to positive 2.9% in the second quarter, driven by beauty and wellbeing and more specifically prestige beauty (Hourglass) and supplements (Liquid IV, Nutrafol). The company announced a capital markets day in London on Nov. 22, 2024.

Management reiterated its fiscal 2024 organic growth guidance of 3%-5% versus 4.4% for consensus (prerelease) and 4% (unchanged) in our model. Core categories performed well; beauty and wellbeing, personal care, and home care exhibited solid volume growth in the second quarter, despite consumer downtrading across several categories, reflecting robust elasticities and brand strength. Home care margin expanded by 400 basis points, driven by commodity deflation that benefited gross margins.

In nutrition, margins expanded by 390 basis points – a function of normalising commodity costs and SKU optimisation efforts. In contrast, ice cream continues to disappoint, with weak volumes (down 1.1%) leading to margin declines due to stepped-up marketing investments. Given the mostly in-line growth numbers and full-year guidance, as well as an expectation of a more modest margin expansion in the second half, our fair value estimates are unchanged at £43.80/€52/$56. The shares appear fairly valued.